After much speculation about its liquidity, Bear Stearns announced Friday that it entered into a fudning agreement with JPMorgan Chase and the Federal Reserve Bank of New York.

NEW YORK (CNNMoney.com) -- Battered Wall Street brokerage Bear Stearns said Friday that it is receiving short-term emergency funding to prevent its collapse.

JPMorgan Chase & Co. and the Federal Reserve Bank of New York said they would provide Bear Stearns funding for up to 28 days, with the Fed providing the money to JPMorgan through its discount window.

With the credit crisis worsening, the government took action to prevent the investment bank from going under and igniting widespread panic through the financial markets.

Bear Stearns (BSC, Fortune 500) shares closed at $30, down 47.4%, reportedly the largest one-day drop in the firm's history.

The announcement did not indicate how much funding Bear Stearns would receive, but executives said in a conference call Friday afternoon that with the money, the firm will "have the ability to fund ourselves every day, to do business as usual."

"It's a bridge to a more permanent solution," said Chief Executive Alan Schwartz.

During the call, Schwartz said the firm's liquidity crunch hit Thursday, when many customers demanded cash after hearing rumors of trouble at Bear Stearns all week.

Bear Stearns had already been working with investment bank Lazard & Co. to explore alternatives when the cash calls came in. The brokerage house decided to secure funding from JPMorgan to give it time to "get some more facts out to the marketplace and give people time to assess them," Schwartz said.

The company, which is continuing to work with Lazard, also announced it is moving up the date of its first-quarter earnings release to Monday and provide more information about its current condition. Prior to Friday's announcement, the consensus among analysts was that the New York-based broker would post a profit of $135 million on revenue of $1.35 billion. Executives reiterated that they were comfortable with the range of earnings estimates.

Schwartz said the firm's capital position, a measure of its soundness, is in "good shape."

Move gets backing of Fed

JPMorgan's move was blessed by the nation's Federal Reserve Bank, which said in a statement that its board members voted unanimously in favor of the arrangement. The Fed added that it would continue to monitor market developments and provide liquidity as needed. Earlier this week, the Fed pumped $200 billion into the market by allowing big bond dealers to offer as collateral certain hard-to-trade mortgage-backed securities for cash.

Wall Street has had plenty to worry about when it comes to Bear Stearns. Shares of the company plunged Thursday morning on fears about how hard the company could get hit by declining values in the mortgage securities market.

Thursday's selloff knocked Bear's stock down to about $57 a share - almost a third of the price it traded at last year before the firm's bad bets on subprime mortgages blew up two of its hedge funds.

Strategic alternatives sought

In the Friday morning announcement, JPMorgan (JPM, Fortune 500) said it was working closely with Bear Stearns on securing permanent financing or other alternatives for the company, although Schwartz warned that there was no assurance that any strategic alternatives would succeed.

JPMorgan, seeking to allay fears of its own shareholders, said that it did not believe the transaction would put them at risk. Shares of the Wall Street firm, however, sank about 4% by midday.

How Bear Stearns handles its current crisis will be of more importance to investors than its earnings report, said Kathleen Shanley, senior analyst at Gimme Credit, a corporate-bond research firm.

She noted the company is not as diversified as some of its larger peers and that its reputation for conservative risk management has been tarnished by recent events.

The firm will have to show shareholders "whether it can prevent further erosion to the value of its franchise," Shanley said.

The crisis, however, is not isolated to Bear Stearns, said Christopher Whalen, managing director of Institutional Risk Analytics, who predicts that the liquidity crunch will only get worse. The heart of the problem is that no one knows how to value the assets these Wall Street firms are carrying so noone wants them.

"A lot of firms are right behind Bear," he said.

After Bear Stearns' announcement, Treasury Secretary Henry Paulson said the Bush administration is working with the Fed and the SEC to address the challenges in the financial markets.

"Our financial system is flexible and resilient and I am confident that the efforts of regulators and market participants will minimize disruption to the system," he said.